‘Going Galt’ Without Realizing

In March of this year, there was a firestorm of libertarians and ultra-conservatives taking up the call of John Galt from Ayn Rand’s Atlas Shrugged. Galt is a bright inventor/engineer that decides to quit furnishing his skills to the economy when his company goes Marxist.

Several on the right are considering a Galt-like removal from the economy to starve the money-hungry habits of an increasingly-socialist government. Others are becoming Galtist without even knowing it.

Many conservatives are shedding debt and increasing assets at an historic pace. By not needing to service debt, they would need anywhere between 5% and 20% less capital than someone living off of lines of credit from banks and credit card companies. The popularity of get-out-of-debt personalities such as Dave Ramsey and Clark Howard is massive and escalating. These personal finance empowerment experts are motivating Americans to shed debt and unnecessary purchases. According to a Wall Street Journal Article, “Total consumer credit outstanding, which includes everything from credit-card debt to loans for recreational vehicles, fell $12 billion in August, or at a 5.8% seasonally adjusted annual rate, the Federal Reserve reported Wednesday. It was the seventh straight month of declines”. Conservatives are eating-it-up, the whole thing, all the way.

If the major bread winners in the economy stopped buying a new BMW or SUV every two or three years that means that they need far less cash flow to service their lives. The real drivers of the economy won’t need to grow their business and some are deciding that enough-is-enough by getting what they get and not going after much more. These people represent almost half of the job creation in the entire U.S. market. What is pushing them to consume less, need less, and therefor produce less?

As income increases, disproportionately so do the taxes, bureaucracy, risk, disparagement by the socialist-minded left and responsibility. An Entrepreneur’s appetite for risk decreases as each of the negatives increase in an increasingly-socialistic atmosphere. Without a tolerance for risk, these captains of the economy will cease to take out loans to finance their future business growth, cease to hire additional workers, cease to find additional ways to increase revenues that will only get increasingly sent to the government. Have we passed the risk/reward threshold? Have the capitalist-hating liberals finally crushed the spirit of the entrepreneur? I don’t think so, but we are approaching these limits rapidly.

Constantly spouting wealth-hating rhetoric, putting in increasingly anti-capitalistic policies, and taxing out high-earners is focusing the mindset of an already fiscally-conservative crowd. This drives them into sharing the ideals of Ramsey and Howard, shedding liabilities and only adding fully-owned assets or even worse for our Keynesian approach to money – saving. The savings rate in America increased by almost 5 times to 6% in the second quarter of this year. We’re saving at a higher rate than any time in the last 20 years and many economic experts think that rate could exceed 8%.

If you believe the news, the increased savings and reduction in credit balances are due to a “credit crunch”. Hooey! Consumers aren’t borrowing. On Bloomberg.com, they state that, “only 8% of adults plan to increase household spending…” while 3% will spend less and a little more than half will spend at their current levels.

This not only takes the interest on credit lines out of the picture, but also takes serious private liquidity out of our financial system. The U.S. uses a fractional reserve system. Basically, a bank must hold $1,000 to be allowed to loan $10,000 (not the real ratio, but good for demonstration purposes). This creates liquidity as $9,000 goes into the economy that did not previously exist.

If the major wealth in the country no-longer believes that some margin of debt is o.k., where will this liquidity come from? The government. Now the cycle of artificial public liquidity (loaning by the Federal Reserve, a.k.a. “printing money”) requires increasing taxes, more-and-more people either unsubscribe to the idea that debt is fine or increasing numbers of them go bankrupt and won’t be able to borrow. A liquidity crisis spiral is created until the big-government spending-based economy collapses under its own weight. That was the goal of John Galt in Rand’s novel and it would appear that it may be occurring not because people are intentionally “going Galt”, but because they are being driven to it by ever-increasing government spending and derision of capitalistic entrepreneurship.

Reagan had it right, you pump up this economy by empowering the hard-working, wealth-creating capitalists. I’m not sure the current administration understands that.. at all.